People who loan you money need assurance that they will be paid back. One of the simplest ways to provide this assurance is to offer what is called collateral. In the case of a home equity loan, this means that the equity in your home is offered as a guarantee that the loan will be paid off.
To determine the amount of money they are willing to lend you, financial institutions such as Capital Direct calculate a figure, which is commonly called lend-able equity. This is primarily based on the equity in your home, but also takes into account factors such as perceived risk, how long you've lived in your home, and the amount of your mortgage down payment. Your Capital Direct representative can explain which factors apply in your situation.
In the eyes of lending institutions, lend-able equity represents secure money that you already have. Because this means less risk, they will loan you money under better terms than you would otherwise get. Everything else being equal, a home equity loan is the best financing deal you can get.
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